Latest news with #SeniorCitizensSavingsScheme
Economic Times
6 days ago
- Business
- Economic Times
Can interest rate on PPF fall below 6.5% after repo rate cut of 1% this year?
ET Online The government is set to review the interest rates for small savings schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), Senior Citizens Savings Scheme (SCSS), and more, on June 30, 2025. So far, the interest rates on the Post Office Savings Scheme have stayed the same since the beginning of the year. But that may change now as the Reserve Bank of India (RBI) has significantly reduced the repo rate by a total of 1% this year. Bond yields have also adjusted to the falling interest rate, and banks have followed the suit by lowering the interest rates on fixed deposits. PPF is currently offering an interest rate of 7.1% which is very close to the lowest interest rate seen in the last 5 decades. Last time, PPF interest rate was seen below 7% was before August 1974. PPF being one of the most popular small saving schemes for long term investment, where investors have been used to expecting an attractive interest rate, any significant drop in interest rate could take the returns to a historically low level and may leave many disappointed. Let us check out how likely it is. Also Read: Are PPF, NSC and other small savings scheme interest rate headed for historic lows? How the Government decides PPF interest The interest rate on PPF is based on a formula recommended by the Shyamala Gopinath Committee. Following the committee's suggestions, the PPF interest rate is pegged 25 basis points above the average of a 10-year G-Sec yield for the previous to data available on the average yield for the 10-year G-Sec was 6.319% between March 25, 2025, and June 25, 2025. When you add those 25 basis points, the PPF interest rate comes out to 6.569%. It is crucial to note that the formula recommended by the committee is not binding on the government. Can the government bring the PPF interest rate below 6.5%? ET Wealth online spoke to experts about whether the government can lower the PPF interest rate below 6.5% if the bond yield continues to fall. Here is what they have to say: Namrata Mittal, Chief Economist, SBI Mutual Fund, says: Shyamala Gopinath Committee (2010) on Small Savings was tasked to review the interest rate structures and administration of small savings in India, including the PPF. The committee had recommended that interest rates for small savings schemes like PPF, should be linked to market yields of government securities (G-secs) of similar maturity. Specifically for PPF, the rate should be linked to the average yield of 10-year government bonds, with a spread of 25 bps above it, thus allowing the PPF rate to be more adaptable to changing economic conditions. However, the resets haven't truly been in line with the committee's recommendations. They have remained constant at 7.1% since April 2020. The committee has suggested that the government should reset these interest rates annually, aligned with the previous year's G-sec average yields. The average 10-year G-sec in FY25 was approximately 6.8-6.9%. Therefore, the 25 bps of mark-up could maintain the PPF rate at 7.1%. Plus, the small savings collection is moderating. The government collected Rs 4.5 trillion under small savings and PPF (combined) in FY24. It's likely to decrease to Rs 4.3 trillion in FY25 (RE stands at 4.1 trillion) and is projected to further decline to Rs 3.4 trillion in FY26 (according to Budgets). The slowdown in small savings is the combined effect of high base (from investment limits upgrade in Union budget 2024) and better returns in alternate avenues of financial savings (like capital market). In this context, a negative shift in interest rate seems less probable. Suresh Darak, Founder, Bondbazaar, says: "While we have seen short-term interest rates drop with the latest round of Repo rate and CRR rate cuts, the 10-year G-Sec has continued to trade in a narrow range around 6.5% for the last five years. Since PPF is a long-term investment with a 15-year lock-in, its returns are unlikely to be pegged below 6.5%. Moreover, the returns on PPF investment at 7.1% is already lower compared to other government saving schemes such as Senior Citizens Savings Scheme (8.2%), Sukanya Samriddhi Yojana (8.2%) and Kisan Vikas Patra (7.5%). PPF provides stable long-term financing to the government, unlike G-Sec, which is more susceptible to market forces and geopolitical risks. Lowering the interest rate on PPF from this level may lead to an outflow of funds to other investment avenues. Thus, it is unlikely that there will be a significant cut in PPF rate, and it should not go below 6.5%." Vineet Agrawal, Cofounder, Jiraaf, a Bond Investment platform, says: The PPF interest rate has held steady at 7.1% for an extended period, despite notable shifts in the interest rate environment. As per the Shyamala Gopinath committee's recommendations, small savings rates-including PPF-should be market-linked and set within a band of 25 to 100 basis points above the yields of government securities with similar maturities. Currently, the 10-year G-sec yield has dropped below 6.5% and is stabilising around 6.3% in response to the 100 basis points repo rate cut seen this year. The growing divergence suggests that the current PPF rate exceeds the recommended spread. With falling G-sec yields, the Finance Ministry will likely move to realign the PPF rate in the coming quarter. While a reduction below 6.5% is technically feasible, any such move would need to weigh alignment with market rates against the political and social sensitivities of lowering returns on a key household savings instrument. Adhil Shetty, CEO, says: It is important to remember that the formula recommended by the Shyamala Gopinath Committee is indicative and not binding, and the government has frequently deviated from it. The government can reduce the PPF interest rate below 6.5% if G-sec yields fall. However, PPF and other small savings are heavily influenced by political, behavioural, and economic factors. PPF is a household savings favourite, and reducing it to below 6.5% can have a serious impact on middle-class and retirement savers. A sharp cut could push savers to exit formal channels or chase riskier products, thereby undermining financial inclusion goals. The government will be wary of any drastic cuts in small savings rates. However, given the high liquidity and falling repo rates, slow correction over time cannot be ruled out. Has the PPF, since its inception, had an interest rate below 6.5%? According to data available from the National Savings Institute, the interest rate on PPF has dipped below 6.5% on four occasions. Initially, when the PPF was launched, it was offering an interest rate of 4.8% from 1968-69 to 1969-70. Following that, from 1970-71 to 1972-73, the PPF scheme offered 5% interest. In 1973-74, the rate increased to 5.3% and then from April 1, 1974, to July 31, 1974, it rose to 5.8%. PPF interest rate since inception YEAR RATE OF INTEREST (%) 1968-69 TO 1969-70 4.8 1970-71 TO 1972-73 5 1973-74 5.3 01.04.1974 TO 31.07.1974 5.8 01.08.1974 TO 31.03.1975 7 1975-76 TO 1976-77 7 1977-78 TO 1979-80 7.5 1980-81 8 1981-82 TO 1982-83 8.5 1983-84 9 1984-85 9.5 1985-86 10 1986-87 TO 1998-99 12 01.04.1999 TO 14.01.2000 12 15.01.2000 TO 28.02.2001 11 01.03.2001 TO 28.02.2002 9.5 01.03.2002 TO 28.02.2003 9 01.03.2003 TO 30.11.2011 8 01.12.2011 TO 31.03.2012 8.6 01.04.2012 TO 31.03.2013 8.8 01.04.2013 TO 31.03.2016 8.7 01.04.2016 TO 30.09.2016 8.1 01.10.2016 TO 31.03.2017 8 01.04.2017 TO 30.06.2017 7.9 01.07.2017 TO 31.12.2017 7.8 01.01.2018 TO 30.09.2018 7.6 01.10.2018 TO 31.06.2019 8 01.07.2019 TO 31.03.2020 7.9 01.04.2020 TO 30.06.2025 7.1 Source: National Savings Institute
Time of India
7 days ago
- Business
- Time of India
Are PPF, NSC and other small savings schemes headed for historic low interest rates? Govt to decide next week
RBI has cut repo rate by 1% Academy Empower your mind, elevate your skills Why bond yield and repo rate cuts matter Will interest rate on PPF, NSC, SCSS and other small savings be cut? What should investors do before a small savings rate cut happens? The interest rates for PPF, NSC and other small savings schemes are set to be reviewed on June 30, 2025. The new rates will take effect for the July-September quarter of FY 2025-26. So far this year, the interest rates for Post Office savings schemes, including the Sukanya Samriddhi Yojana and the Senior Citizens Savings Scheme, have remained unchanged. But this could change starting July 1, Reserve Bank of India (RBI) has cut the repo rate thrice since the start of 2025. The central bank first cut the repo rate by 25 basis points in February, then again by 25 basis points in April and by 50 basis points in June. To date, the central bank has cut the repo rate by 1%.The banks have reduced the interest rate on fixed deposits in response to the repo rate cut. Some banks have also discontinued their special FDs, which offered higher interest rates compared to normal bank FDs for a specified 1% cut in repo rates has also brought down bond yields. Investors need to keep in mind that there is a positive correlation between bond yields and the RBI's policy rates. So, whenever market expects the RBI to reduce the repo rate, bond yields tend to drop as per data from the 10-year G-sec bond yield was at 6.779% on January 1, 2025. But by June 24, 2025, it had fallen to 6.247%. This means the bond yield has decreased by 0.532% so far and a further downward adjustment cannot be ruled interest rate on the Post Office Savings Scheme is determined on the basis of the recommendations of the Shyamala Gopinath Committee. According to the recommendations accepted by the Finance Ministry, secondary market yields on Central Government Securities of comparable maturities should serve as benchmarks for the interest rates on various small savings instruments, along with a positive spread of 25 basis means that the interest rate of a 5-year time deposit should be based on the yield of 5-year G-secs prevailing in the secondary market plus 25 basis PPF, the average yield of 10-year G-sec between March 24, 2025, and June 24, 2025, is 6.325%, according to Adding 25 bps on this, will bring the PPF interest rate to 6.575% as per the formula recommended by the committee. Currently, PPF offers 7.10% to the by the set methodology, a repo rate cut and a fall in bond yield indicate that interest rate on small savings scheme may also be cut keeping in view of the prevailing interest rate in the market. However, this does not always reflect in the final decision taken by the Wealth Online spoke to experts to determine whether interest rates on PPF, NSC, and other small savings are likely to be cut. Here's what they have to say:Given its focus on fostering economic growth through a more accommodative monetary policy, the Reserve Bank of India (RBI) reduced the repo rate by 0.5% on June 6th, bringing the total reduction to 1% in 2025. As a result, interest rates for small savings scheme are likely to be lowered. So, a reduction in interest rates for small savings schemes is anticipated. Since the RBI is prioritising growth through lower borrowing costs, a corresponding rate cut for small savings schemes is expected in the next update. The final decision will depend on the government's quarterly review and prevailing economic the Reserve Bank of India cutting the repo rate by a cumulative 100 basis points in 2025, attention is now on the upcoming quarterly revision of small savings scheme (SSS) interest rates. SSS rates, while administratively set, are typically aligned with prevailing interest rate trends and yields on government securities. In recent weeks, several banks have already begun reducing their fixed deposit rates, signalling broader rate transmission across the financial system. Given the sharp monetary easing and the government's emphasis on fiscal prudence, it is likely that SSS rates for instruments such as the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and National Savings Certificate (NSC) could be cut by 25-50 basis interest rates on small svaings schemes usually move with market trends, but the decision is not automatic as while deciding rates, the government also takes note of savers' year, the RBI has cut the repo rate by 1%, pushing overall interest rates lower. Normally, this would mean small savings rates could drop too, to stay in line with bank FDs and bonds. But there's a catch: these schemes are a lifeline for retirees, pensioners, and middle-class households. A big cut could hurt their income, especially when inflation is low and bank FD rates are already falling. The government also keeps political and social factors in mind, after all, millions depend on these schemes. So, while a small cut (say, 0.1-0.3%) is possible, a sharp reduction seems unlikely. The government might even hold rates steady to support savers, now that elections are over and inflation isn't a worry. A minor trim could happen, but don't expect a major drop. The government will likely balance market trends with savers' planning to invest in various small savings schemes should do so on or before June 30, 2025. This is because any rate cut will take effect from July 1, you invest in time deposits, recurring deposits, Senior Citizens Savings Scheme, Monthly Income Account, National Savings Certificate and Kisan Vikas Patra, on or before June 30, 2025, your investment will be locked at current high interest rate and will not be impacted by subsequent rate cut effective from July 1. This is because once the investment is made, then interest rates are locked till maturity investment in PPF and SSY will be impacted, as interest on account balances keep changing with time and are calculated on a monthly says, "Investors may consider locking into current Small Savings Scheme rates before the revision. Additionally, as interest rates trend lower, long-duration debt funds and target maturity bonds become more attractive for investors seeking to preserve real returns in a softening rate environment."
Mint
20-06-2025
- Business
- Mint
Retirement planning: Is this advisable to invest in solution-oriented mutual funds?
If you want to save for your retirement, it is feasible as well as advisable to invest in mutual funds across categories. Equity mutual funds enable long long-term wealth creation, debt schemes provide security. Additionally, investors can also allocate some funds to long term tax-saving instruments such as PPF, Senior Citizens Savings Scheme (SCSS) and Kisan Vikas Patra (KVP) for earning higher interest and saving tax at the same time. All in all, one needs to curate a portfolio of sorts to accumulate sufficient funds for the same. But what if you outsource the entire retirement plan to a fund manager by investing in a solution-oriented fund? Those who are not aware, solution oriented mutual funds refer to those schemes which have a lock-in period of at least 5 years or till retirement age, whichever is earlier, per the Sebi's categorisation of mutual fund schemes. There are a total of 29 such schemes with total asset size (assets under management) of ₹ 31,007 crore., as on May 31, 2025. Some of the large retirement funds include UTI Retirement fund ( ₹ 4,703 crore), Nippon India Retirement Fund ( ₹ 3,156 crore), HDFC Retirement Savings Fund ( ₹ 6,503 crore) and SBI Retirement Benefit Fund aggressive plan (2900 crore), reveals the data from Association of Mutual Funds in India (AMFI) as on June 19, 2025. Investing in retirement schemes is indispensable for investors to maintain the same standard of living after retirement as they had before it. 'Gone are the days when our parents were getting regular monthly pensions from the government. Nowadays most of people are from private jobs or running their own business. In today's world, when private jobs are not secured, there is no question of a pension from the employer. And that's made Retirement Planning more crucial,' says Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services. Soumya Sarkar, Co-founder of Wealth Redefine, says, 'Retirement-focused solution-oriented mutual funds can be a good choice for building a retirement corpus. These funds are designed for long-term goals, with a 5-year lock-in ensuring disciplined investing and shielding you from short-term market volatility. They offer a mix of equity (for growth) and debt (for stability), customised to your risk appetite, helping you accumulate wealth over time.' Those who want to curate their own portfolio can invest in a combination of mutual funds, opines Zende. 'It is better that you use a combination of diversified equity Mutual funds like large cap, flexicap and mid and small cap, along with EPF, PPF and NPS. So this portfolio will also take care of inflation-headed return, provide downside risk to the portfolio, and some income is tax-free,' adds Ms Zende. Visit here for all personal finance updates.
Mint
17-06-2025
- Business
- Mint
With FD interest rates on a downswing, is this the right time to switch to small savings schemes?
Soon after the Reserve Bank of India (RBI) cut its repo rate by 50 basis points, most banks have followed suit by cutting interest rates on their fixed deposits (FDs). Now most banks offer anywhere between 6.25 to 6.5 percent per annum on their term deposits. This is enough to prompt investors to look beyond fixed deposit for safe investment options. Another alternative for investors is to invest in small savings schemes. These are also known as post office savings schemes. I. National Savings Recurring Deposit Account: This offers 6.7 percent per annum with a minimum ₹ 100 contribution. The scheme gets maturity five years from the date of opening. II. National Savings Time Deposit Account: This scheme offers 6.9 percent interest rate per annum for one year, 7 percent for two years, 7.1 percent for three years and 7.5 percent for five years. III. National Savings Monthly Income Account: This account offers 7.4 percent per annum payable monthly. The minimum amount for opening of account is ₹ 1,000 and maximum investment limit is ₹ 9 lakh (single account) and ₹ 15 lakh in joint account. IV. Senior Citizens Savings Scheme Account: This account offers 8.2 percent per annum and one can make one deposit in the account in multiple of ₹ 1,000 not exceeding ₹ 30 lakh. Account Interest (%) RD Account 6.7 Time deposit – 1 year 6.9 Time deposit - 2 years 7 Time deposit - 3 years 7.1 Time deposit - 5 years 7.5 National Savings Monthly Income Account 7.4 Senior Citizens Savings Scheme 8.2 PPF 7.1 Sukanya Samriddhi Yojana 8.2 National Savings Certificate 7.7 V. PPF (Public Provident Fund) Account: Another popular alternative to fixed deposit is PPF which offers 7.1 percent interest, and the maximum investment limit is ₹ 1.5 lakh. VI. Sukanya Samridhhi Account: This offers 8.2 percent per annum and the maximum amount which one can invest in the account is ₹ 1.5 lakh per year. VII. NSC (National Savings Certificate): NSC offers 7.7 per cent per annum and there is no maximum investment limit. VIII. KVP (Kisan Vikas Patra): It offers 7.5 per cent per annum compounded annually. The minimum investment is ₹ 1,000 and there is no maximum limit. Visit here for all personal finance updates
The Hindu
12-05-2025
- Business
- The Hindu
The importance of Small Savings Schemes
Small Savings Schemes, kown as Post Office Savings Schemes, are a popular and useful means for people for channelising savings. Credit quality is top-notch as it is run by the government, and interest rates are competitive. Interest rates are fixed by the government every quarter e.g. the rates for the current quarter, April to June 2025, were announced on March 31. Today we will see, on what basis the rates are fixed by the government. Basis for fixing rates As per an old decision of the Government, the rate of interest on Small Savings Schemes will be aligned with Government Security (G-Sec) rates of similar maturity with a spread i.e. mark-up. As an example, the spread on Senior Citizens Savings Scheme will be 1% over comparable maturity G-Secs. The rationale for linking it to G-Sec yields in the secondary market is that it is in line with interest rate movements; G-Sec yield movements reflect actual and anticipated economic events pertaining to interest rate movement. To clarify the concept, let us say the benchmark G-Sec rate is X% and the mark-up as per the formula is Y%. Hence, the rate should be X% plus Y%. However, if the rate is higher, say X% plus Y% plus Z%, then Z represents the generosity of the Government for the benefit of citizens. The rates on Small Savings Schemes are reviewed every quarter. However, rates are not revised downward every quarter even when G-Sec rates are sliding, which is the 'Z' referred earlier. Prevailing rates Post Office Savings Deposit rate is 4%. Public Provident Fund (PPF), which is a 15-year scheme (though it can be extended), is supposed to have a spread of 25 basis points (100 bps = 1%). The relevant G-Sec rate (the average of G-Sec of corresponding maturity from December 2024 to February 2025) relevant for the quarter April to June, was 6.85%. By that logic, PPF rate is (6.85 + 0.25= 7.1%) maintained now. Post Office Term deposits of 1, 2 and 3-year maturity are to be at the corresponding G-Sec rate, without any markup. For a 5-year term deposit, the spread is 25 bps. Against the reference G-Sec yield of 6.62%, it should have been 6.87%. The rate for a 5-year TD is 7.5%. The excess interest is 0.63%. This 63 bps is the 'Z' referred earlier. Kisan Vikas Patra (KVP) is at zero spread; with reference point at 6.85% and rate at 7.5%, the additional interest over formula is 0.65%. For NSC VIII Issue, which is at a mark-up of 25 bps, formula rate is 7.04%. At 7.7%, the additional interest is 0.66%. Senior Citizen Savings Scheme (SCSS), mentioned earlier, has the highest spread of 1% over reference G-Sec yield, as a social benevolence to take care of seniors, who may not have active income. At the reference 5-year G-Sec yield of 6.62%, the formula rate is 7.62%. The rate on offer is 8.2%, implying an additional interest (Z) of 0.58%. Sukanya Samriddhi The last is the Sukanya Samriddhi Account Scheme, which has the longest tenure of 21 years. The formula mark-up is 75 bps. The reference G-Sec yield is 6.85%. Against the formula rate of 7.6%, the rate is 8.2%. The additional interest a girl child would get this quarter is 0.6%. Interest rates are coming down, as the Reserve Bank of India (RBI) has been reducing the reference repo rate. The repo rate, which was 6.5% earlier, is at 6% now. It is expected that the RBI would cut the repo rate further. This is driven by lower inflation and economic growth being a little lower than earlier. Consequently, G-Sec yields have eased. As an example, 10-year maturity G-Sec, which was at 7.2% a year ago and 6.85% six months ago, is at 6.36% now. The reference G-Sec yield levels mentioned earlier pertain to the period December 2024 to February 2025. Since then, G-Sec yields are lower. The implication is, when rates for next quarter viz. July to September are announced on June 30, the reference point will be lower. Conclusion We have mentioned earlier, there is a 'generosity component' or 'Z' component in the currently prevailing Small Savings rates. With the reference rate coming down, if the government maintains the current rates, the 'Z' component will be higher. While it is possible it maintains current rates as there is a political implication of cutting it, pressure will be higher on government's finances. Hence there is a possibility Small Savings rates may be reduced going forward. From that perspective, if you have the money, it is advisable that you lock-in by June. (The writer is a corporate trainer (financial markets) and author)
